Varex Imaging’s Earnings Call Highlights Growth Amid Tariff Challenges

Varex Imaging Corporation ((VREX)) has held its Q2 earnings call. Read on for the main highlights of the call.

Varex Imaging Corporation’s recent earnings call revealed a mixed sentiment, reflecting both optimism and caution. The company reported strong performance in revenue growth, margin improvement, and a robust cash position. However, these positives were tempered by significant challenges, particularly tariffs affecting sales in China and potential margin pressures. Despite these hurdles, Varex is actively working on strategies to mitigate these impacts, though the geopolitical landscape remains unpredictable.

Revenue Growth in Medical and Industrial Segments

Both the Medical and Industrial segments of Varex Imaging Corporation experienced a 3% year-over-year revenue growth. The Medical segment saw strong demand, especially for CT tubes, while the Industrial segment benefited from increased global security screening demand.

Improved Gross Margin

The company reported an improved gross margin, which increased to 36% from 33% in the same quarter last year. This improvement was attributed to better volume, a favorable product sales mix, and productivity gains.

Strong Cash Position

Varex’s cash from operations reached $17 million, with total cash, cash equivalents, and marketable securities amounting to $226 million, marking a $36 million increase year-over-year.

Significant Cargo Inspection Order

A notable $25 million order for cargo inspection systems was announced, adding to a previous $14 million order. These systems are expected to be installed over the next 12 to 18 months, highlighting ongoing strength in the Industrial segment.

Photon Counting Technology Advancements

The company continues to make progress in photon counting technology, with active engagement from large imaging OEMs for next-generation CT systems.

China Tariff Impact

The 125% tariff imposed by China on US products is expected to negatively impact Varex’s sales by about $20 million in the third quarter, as customers are pausing purchases.

Potential Margin Pressure from Tariffs

Tariffs are anticipated to impact gross margins by 150 to 200 basis points. Varex is implementing mitigation efforts to address these pressures.

Impact of MOFCOM Investigation

The China Ministry of Commerce has initiated investigations on medical products imported into China, which could affect the competitiveness of Varex’s X-ray tubes.

Reduced Revenue Guidance Due to Tariffs

Varex has adjusted its revenue guidance for the third quarter to between $180 million and $200 million, anticipating a significant impact from tariffs, particularly in China.

Forward-Looking Guidance

During the earnings call, Varex reported strong demand with revenue near the high end of expectations. Both the Medical and Industrial segments experienced a 3% year-over-year increase. The company is concerned about the impact of the 125% tariff imposed by China, which could reduce sales by $20 million in Q3. Despite these challenges, Varex is pursuing strategies to mitigate tariff impacts and expects continued growth driven by innovation and cost leadership.

In summary, Varex Imaging Corporation’s earnings call highlighted a balanced outlook with strong revenue growth and margin improvements, countered by significant challenges from tariffs and geopolitical uncertainties. The company remains committed to mitigating these impacts and driving growth through innovation and strategic initiatives.